US: The Big Brother Bully

This alliteration refers to the dreaded ‘Special 301’ report which was published by the United States recently, putting India on its ‘Priority Watch List’ (PWL) for the 22nd year in a row. The Special-301 is an annual review of the status of IPR protection and enforcement worldwide and categorizes countries according to the level of IPR protection which they offer. PWL is an honour that is bestowed upon a trading partner, which in the opinion of the US, has “serious intellectual property rights deficiencies” that require the attention of the United States Trade Representative (USTR).

The PWL countries stand the risk of being elevated to Priority Foreign Country (PFC) which refers to countries where the most egregious violations of IPR exist and which harm competition to the US market abroad. The Special 301 derives its name from Section 301 of the US Trade Act of 1974 which gives power to the US to impose unilateral trade sanctions on PFCs.

The Special 301 report has expressed much angst against India for its so-called weak IP protection laws such as compulsory licensing of patented drugs, pre-grant opposition to patent applications and section 3(d) of the Indian Patents Act (a provision to check ever-greening of pharmaceutical patents). India, which is currently a PWL country, stands the risk of being designated a PFC if it does not mend its IP laws in favour of stronger protection for rights holders.

The Special-301 has been criticized worldwide since it violates the WTO obligations of member countries to refrain from exercising unilateral trade sanctions. The proper recourse for the US to take against countries, which thwart US trade, is to file a WTO complaint. Section 301 of the Trade Act allows the US Congress to take action against a country even where the trading partner otherwise fulfils its obligations under the WTO.

While the US cannot impose trade sanctions on PWL countries, the PWL has served as an effective instrument to get countries to toe the line. In 1993 when Taiwan was designated a PWL country it quickly passed the Cable TV law to prosecute video piracy in order to avoid being listed a PFC.

India has maintained a cold response to the Special 301 so far and refused to negotiate with the US over its IP laws. However, the recent developments in patent law practices in India cause one to wonder whether India has indeed stuck to its guns. In March this year, there were allegations that India had privately assured the US against issuing compulsory licences over patented US drugs. These allegations were quickly brushed aside by the Indian government. On 9th May, the Indian Patent Office granted the patent application over Gilead’s blockbuster Hepatitis-C drug, Sovaldi, although it had in an earlier decision rejected the same application on the ground that it failed section 3(d) requirements under the Patents Act. The Sovaldi application has been the subject of much controversy in India due to the lack of transparency in the Sovaldi pre-grant opposition proceedings. India has also been toying with a draft IP policy which has been severely criticised as serving the interests of the US.

It appears that India is gradually caving in to the duress by Big Brother, US. The US approach of putting countries on the PWL can be likened to carrying a stick to have one’s way without actually using the stick. By putting countries on the PWL, the US warns its trading partners that it would ‘use the stick’ (i.e. impose unilateral sanctions by designating the countries as PFC) if they do not change their IP laws to favour the US.

The WTO Dispute Settlement Understanding prohibits not only unilateral trade sanctions but also determinations by member countries that a trading partner has violated its obligation under the WTO. Putting a country on the PWL constitutes a determination by the US that the trading partner does not provide for effective IP laws and such a determination can be challenged in the WTO. The PWL therefore is as illegitimate under the WTO as the PFC list.

The US might argue on a technical ground i.e. that it placed India on the PWL list not because India violated its TRIPS obligations but because of India’s weak IP laws (section 301 allows US to impose sanctions against countries even where they fulfil their TRIPS obligations). To me, this argument is fundamentally flawed because the purpose of having an institution like the WTO in place is to preclude countries from exercising unilateral trade sanctions unless countries have entered into free trade agreements (FTAs) allowing such an action.

India should consider challenging its PWL status under Special 301 in the WTO instead of waiting for the US to designate India a PFC. India’s unique IP laws are consistent with its minimum obligations under the WTO and India should not let the US bully it into changing its IP laws as this might harm access to medicines in India.

For an excellent analysis of arguments that India can use if it challenges the Special 301 in the WTO, read Suzanne Zhou’s article.